Euro supported by report suggesting ECB's Draghi will be challenged

NEW YORK (Reuters) - The euro rose on Tuesday on a report citing internal tensions within the European Central Bank over the leadership style of its chief, Mario Draghi, that left markets expecting limits on future ECB loosening of monetary policy.

A picture illustration of Euro banknotes and coins taken in central Bosnian town of Zenica, April 26, 2014. EUTERS/Dado Ruvic

An exclusive report by Reuters said that euro area national central bankers plan to challenge Draghi at a regularly scheduled ECB meeting this week. They are particularly angered by his move to effectively set a target for increasing the bank’s balance sheet immediately after the governing council explicitly agreed not to make any figure public, ECB sources told Reuters.

“It is an excuse to reduce long dollar positioning but the move remains quite mild in FX,” he said, referring to the greenback’s months-long rally that has seen it reach its strongest levels since September 2012 against the euro.

Selling pressure on the euro is softened by any potential slowing down of ECB measures to boost liquidity in the euro zone to spur borrowing and investment.

The reported tensions come after the European Commission on Tuesday slashed its euro zone economic growth forecast for 2015 to 1.1 percent from an earlier forecast of 1.7 percent.

The euro hit a high of $1.2577 on the EBS trading platform, but eased back to $1.2544, up 0.50 percent on the day.

A slowdown of ECB moves toward looser monetary policy would contrast sharply with the situation in Japan, which announced more massive measures to ease policy last week that sent the yen to a roughly seven-year low against the greenback.

“There is some concern that we have very aggressive policy coming from the Bank of Japan, the completion of QE in the U.S. and move toward higher interest rates, and we have the ECB almost in the middle, where they have announced some policies but not particularly aggressive,” said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

The euro touched a seven-month high of 142.61 yen, up 0.22 percent, while the dollar fell 0.34 percent to 113.64 yen.

The dollar index, which measures the greenback against a basket of currencies, fell 0.30 percent from Monday’s four-year high to 87.04 .DXY.

OIL CURRENCIES HAMMERED

The Norwegian crown and the Canadian dollar fell sharply as world oil prices dropped. Brent crude LCOc1 prices dropped more than 3 percent to their lowest in more than four years after top oil exporter Saudi Arabia cut sales prices to the United States.

The U.S. dollar rose to its strongest in more than five years against its Canadian counterpart, at C$1.1426. It last traded near C$1.1407, up 0.45 percent on the day. The euro advanced on the Norwegian crown by 1.18 percent to 8.5960 crowns, having earlier reached its highest level since late 2009 of 8.6360 crowns.

Additional reporting by Patrick Graham in London and Masayuki Kitano in Singapore; Editing by Jeremy Gaunt, James Dalgleish and Peter Galloway